LT Weekly: May 02, 2025

The barrage of earnings prints were in full force this week, as 40 companies in our LionTree Universe reported their Q1 results (up from 21 last week). Similar to last week, earnings reactions were biased to the upside, with 21 companies (52%) trading up in reaction to their reports and 19 companies (48%) traded down. Cable One has the worst performance of the lot, falling a huge -41.8% after its report, while Duolingo was the best performer, up +21.6%.

Earnings prints were across a broad list of sub-sectors this week. Starting with big tech, it was a mixed bag across MAANG with Meta trading up +4.2% post its print (see Theme #2), Amazon ~flat (see Theme #3), and Apple down -3.7% (see Theme #6).

In digital advertising, Reddit and Snap both took a hit post earnings, down -4.2% and -12.4%, respectively (see Theme #8). It was also a notable week on the music front, both on the streaming side with Spotify, which fell -3.5% (see Theme #4) and on the label side with Universal Music Group, which was down -0.1% (see Theme #5). Live Nation was also a key print out this week and was up +1.9% (see Theme #7).

Outside of entertainment, some travel results were out, including Booking and Airbnb, which were both up +3.9% and +1.0%, respectively (see Theme #9). Lastly, we also got a first look into the last-mile/delivery space with Instacart, which saw its stock surge +13.6% in reaction (see Theme #10).

It seems like an eternity since DeepSeek shocked the Big Tech industry in January, and Meta reported their Q4 results shortly thereafter. So much has changed but so much has also stayed the same. Importantly, Meta’s core advertising business performed well in Q1 and the Co’s Family of Apps (FOA) revenue decelerating less than expected (to +16% y/y from +21% y/y in Q4) and beating cons by +2.4% was a standout. Though to be fair, this was against lowered expectations. FOA op margins also handily topped expectations. AI advancements in advertising and the recommendations systems are driving results and Meta is still in the early days in this journey.

Commentary on the general macro was limited. Trends that the Co has been seeing so far in April have been “generally healthy” but, not as a surprise, mgmt did call out reduced spend in the US from Asia-based e-commerce exporters, which they believe is likely due to the anticipated May 2 removal of the de minimis exemption. The wide Q2 revenue growth outlook of +8.8% to +16.5% y/y versus the reported +16% y/y in Q1 seems to reflect some level of cautiousness but CEO Mark Zuckerberg believes the Co is “well positioned to navigate the macroeconomic uncertainty”.

As you can imagine, all eyes were also on spending trends/outlook and while Q1 CapEx was actually light vs estimates, a big ramp is coming given the Co raised 2025 CapEx guidance +8.8% at the mid-point to $64-72bn. Meta has been facing capacity issues internally, hence stressed that the bulk of the CapEx growth is being directed to support internal needs vs genAI (i.e., will have near term returns). However, mgmt was not ready disclose if 2025 will be a peak year, as “it’s too early to discuss plans beyond 2025”. On the flipside related to costs, after posting much better cost efficiency and operating leverage in Q1, the Co lowered its 2025 expenses outlook to $113-$118bn from the prior $114-$119bn (vs $95.1bn in 2024) which was well received,

Zuckerberg remains very optimistic about Meta AI – it should be “one of the most valuable services.” It now has almost 1bn MAUs and initial feedback on the Co’s recently released stand-alone app “has been good so far.” In terms of other future opportunities, the Co is still on track for mid-level AI engineers being possible this year (and scaling next year) and Business Messaging is seen as the “next pillar of growth.” In the next few years, Meta believes that every biz will have an AI business agent that can do customer support and sales. Reality Labs remains a work in progress and top line missed by -16.4% but its Ray-Ban Meta AI glasses have tripled in sales in the last yr and “the people who have them are using them a lot” so there are pockets of momentum.

With all that said, Zuckerberg’s ultimate vision is to build full general intelligence…

-> Meta’s stock was up +4.2% on the back of its results and ended the week up +9.1%; YTD the stock is up +2.0% 

It Was A Clean Sweep Qtr Of Beats Across The Top-Line In Q1 

• Q1 total revs beat cons by +2.4% and grew +16% y/y (but a decel from +21% y/y in Q4): Family of Apps beat by +2.3%, while Reality Labs missed by -16.4% 
• Q1 adj. op income beat by a notable +15% (margin of 41.5% easily beat cons 37.3%) 
• Q1 EPS of $6.43 came in well ahead of cons $5.23 
• FCF beat by +17.0% 

Q2 Rev Guidance Was A Tad Ahead Of Expectations But The Range Is Wide…While Ad Trends Generally Look “Healthy”, The Co Flagged Some Pullback In Asia-Based E-Comm Spend  

• Q2 OUTLOOK – rev beat @ the midpt by +0.4%: $42.5-$45.5bn vs cons $43.84bn, but this implies a wide +8.8%-16.5% y/y range
  • $3bn rev guide range partly reflects “the potential for a wider range of outcomes”

• “Q2 outlook reflects the trends we’re seeing so far in April, which have generally been healthy” …
• …BUT the Co is seeing reduced spend in the US from Asia-based e-commerce exporters, which they believe is likely due to the anticipated May 2 removal of the de minimis exemption
  • While a portion of that spend has been redirected to other markets, overall spend for those advertisers is below the levels prior to April

• Did not provide rev guidance beyond Q2: “Hard to know how things will play out over the quarter and certainly harder to know that for the rest of the year”

2025 CapEx Guidance Goes Up, AGAIN…But 2025 Total Expense Guidance Was Slightly Lowered

• Q1 CapEx came in LOWER than expected…: $13.7bn vs cons $ $14.32bn
• …but 2025 outlook was RAISED (and came in well ahead of cons estimates): $64-$72bn vs prior guidance $60-$65bn (raised by +$5.5mn or +8.8% at the midpt); The Street expected CapEx to be lowered to $59.56bn 
  • Reasoning? Accelerating some efforts to bring capacity online more quickly this year, along with long-term projects to enable future expansion; Also factoring in higher infrastructure hardware costs driven by global supply chain uncertainty, and ongoing work to optimize their supply chain
• On 2026 CapEx – “it’s too early to discuss plans beyond 2025” 
• Separately, the 2025 expense outlook was LOWERED: $113-$118bn from prior $114-$119bn (vs $95.1bn in 2024)
  • Reflects more “refined” forecasts, including updated expectations for employee compensation and other non-headcount-related OpEx, partially offset by higher expected infra costs related to increased CapEx outlook and higher than expected Reality Labs cost of goods sold

Amazon’s core Online stores business grew +6% y/y ex-FX in Q1, down from +8% in Q4, but beat cons by +1.4% which was a bright spot. While Amazon has not seen any attenuation of demand from consumers thus far due to the macro, it has in fact seen signs of consumers stocking up in advance of any potential tariff impact. Also, the average selling price of retail items have not materially changed, and in this environment, the Co is squarely committed to offering value where they can. These low prices, plus the broad selection that Amazon has on its platform, should help the Co weather any behavioral spending shifts that emerge. With that said, the Co did bake in some uncertainty given the macro situation (along with a seasonal step up in stock-based comps, and addtl Kuiper launch costs) into its disappointing Q2 operating income guidance, which was -13.5% below consensus.

Given all the focus and debate about CapEx spending levels for the big hyperscalers, it was interesting that capital spending was not as big of a topic of conversation during Amazon’s Q1 conference call as recent previous calls. Mgmt did not comment either way on its existing guidance for ~$100mn in CapEx for the FY2025 (we are assuming this is still on track) but what was clear is that growth in the Co’s AWS business is still being held back by capacity constraints, which won’t start to ease until H2, when increasing levels of capacity will come online. In the meantime, AWS operating margins of close to 40% in Q1 were a positive surprise, though margins should “fluctuate” alongside investments in H2, so we wouldn’t count on that level necessarily being maintained. Amazon continues to invest in its full AI stack, with several updates during the qtr (see below) and mgmt now believes that AWS will be a bigger business than it originally thought pre-gen AI.

In terms of other areas of investment, faster and more efficient delivery continues to be in mgmt’s sights. While phase 1 was regionalizing the national fulfillment network into regional hubs, now the focus is on re-architecting the inbound network to leverage this new regionalization structure. Beyond that, Amazon will continue to improve its cost structure by building out same-day delivery sites, expanding its rural delivery network, and adding robotics & automation to facilities. “Better inventory placement remains a top priority”

Other highlights in Q1 include another strong quarter for advertising revenue growth at +19% ex-FX and the subscription business, which grew +9% y/y. The Co has been rather quiet about its self-driving tech initiatives, but in the press release did indicate that it began testing Zoox in Los Angeles, the 6th location for Amazon’s self-driving tech.

See below for more of our takeaways from Amazon’s Q1 results and call.

-> Amazon shares closed the day flat post results and are still down -13% YTD.

Q1 Was Generally A Solid Qtr for Amazon BUT The Weaker Q2 Op Income Guidance Spooked Investors

• Q1= Op income beat lowered expectations (by +5.4%), with inline revs / EPS was well ahead
  • Total revs INLINE: Up +10% y/y ex-FX (vs +11% ex-FX in Q4
  • Op income BEAT: Up +20% y/y (margins reached 11.8% vs cons 11.3%) and beat cons by +5.4%
  • Adj EPS BEAT: +16% ahead of cons

• Q1 by segment – Online, Physical Stores & Ad revs were the upside drives to revs while 3P revs were lower than expected
  • Online stores grew +6% y/y ex-FX vs +8% in Q4

• Q1 by region – N. Amer & Intl revs were both better than expected while AWS profitability upside (followed by Intl) was a driver: Note that 1x charges weighed on N. Amer & Intl op margins, which were related to some historical customer returns that have not been resolved and some costs to receive inventory that pulled forward into Q1 ahead of anticipated tariffs
  • N. Amer – MIXED w/ slightly higher rev but lower than expected op income: Revs rose +8% y/y (vs +10% y/y in Q4) w/ 6.3% op margins (90bp higher ex 1x charges)
  • Intl – INLINE TO BETTER w/ higher rev but ~inline op income: Revs rose +8% y/y ex-FX (vs +9% y/y in Q4), w/ 3% op margins (70bp higher ex 1x charges)
  • AWS – INLINE TO BETTER w/~inline rev but much better op income: Revs grew +19% y/y and op margins hit 39.4%
• Worldwide paid units incr’d +8% y/y (vs +11% y/y) and WW 3P selling unit mix was 61% in Q1, consistent w/ Q1 of last year
• Q1 CapEx hit $24.3bn

• Q2 op income GUIDANCE at the mid was -13.5% below the Street (Q2 rev guidance was inline) 
  • Assumes a 10bp FX headwind to revs
  • Op income guidance includes – 
    • The impact of their seasonal step-up in stk-based comp expense in Q2
    • Some addtl Kuiper launch costs in Q2 (expensed)
    • They will be paying tariffs on retail purchases based on current rates but “it’s not large in Q2”; They did a lot of pre-buying of inventory in Q1
    • “With the uncertainty, we’ve added a bit to the range that we’ve given you”

Amazon’s Broad Retail Selection & Low Prices Will Help The Co To Better Weather Any Macro Storm

• The Co hasn’t seen any attenuation of demand yet…they have actually seen some “heightened buying in certain categories that may indicate stocking up in advance of any potential tariff impact”
• Everyday essentials grew more than 2x as fast as the rest of the biz & represented 1 out of every 3 units sold in the US
• Avg selling prices of retail items “have not appreciably gone up yet”: In part helped by some forward buying they did and advanced inbounding some 3P sellers have done; And a fair number of sellers just haven’t changed prices yet
  • Though “this could change depending on where tariffs settle”
• Focused on keeping prices low where they can: “We’re doing everything we can to keep our prices low for customers in a way that makes economic sense…it is an uncertain moment for consumers so it is important to focus on value”
• Amazon’s broad selection and breadth of everyday essentials “puts them in a good position to weather challenging conditions better than others”
  • “Customers are going to have a better chance of finding variety on selection and on lower prices when they come here”

The Co Is Still Capacity Constrained In AWS But That’s On Track To Ease In H2

• AWS revs grew +17% y/y ex-FX, vs +19% during the last 3 qtrs (& was roughly in-line w/ expectations)
  • Continue to see growth in both generative AI and non-generative AI offerings
• AWS rev growth continues to be capacity constrained and mgmt. reiterated that constraints will relax in H2:2025
  • “As fast as we actually put the capacity in, it’s being consumed”
  • Mgmt highlighted that they could be growing faster if they had more capacity, which they expect in the “coming months”
  • AWS revenue can also be lumpy due to the sales cycle, esp for enterprises, and it is hard to predict when startups are going to find product market fit and grow substantially; Migrations can also be unpredictable timing wise; AI models and AI coding agents can also have demand bursts
• A big highlight in Q1 was the almost 40% AWS op margins, which handily topped expectations (by +9.8%) but those “will fluctuate” looking ahead
  • Margins are impacted by a lot of things, incl levels of investment, competitive pricing, and the mix of gen AI services as they ramp up
  • Margins will “continue to evolve” and “we do have a lot of investment in infrastructure going on and planned for the second half of the year. So we’ll start to see the impact of that”…and “as we’ve said before, we expect AWS operating margins to fluctuate over time driven in part by the level of investments we’re making at any point in time”
• Continue to believe the Co is well positioned with its full AI stack…a few updates –
  • Scaled customers can get 30-40% better price performance with Tranium2 vs other GPU-based instances; The price of inference needs to come down “significantly” and this is part of “our mission”
  • New foundation models in Amazon Bedrock, incl Anthropic’s Claude 3.7 Sonnet, DeepSeek’s R1, Meta’s Llama 4 family of models, and Mistral AI’s Pixtral Large
  • A few weeks ago, released Amazon Nova Sonic, a new speech-to-speech foundation model that enables developers to build voice-based AI applications that are highly accurate, expressive, and human-like
  • The tech to build action-oriented agents is still “primitive, inaccurate, and requires constant human supervision, but now released Amazon Nova Act which is a new AI model trained to perform actions w/in a web browser
    • Nova Act SDK aims to move the current state-of-the-art accuracy of multi-step agentic actions from 30 to 60% to 90%+
• New agreements: Adobe, Uber, NASDAQ, Ericsson, Fujitsu, Cargill, Mitsubishi Electric Corporation, General Dynamics Information Technology, GE Vernova, Booz Allen Hamilton, NextEra Energy, Publicis Sapient, Elastic, Netsmart, and many others
• Mgmt believes that AWS will be a much bigger business than they originally thought – 
  • “Before this generation of AI, we thought AWS had the chance to ultimately be a multi-hundred billion dollar revenue run rate business. We now think it could be even larger”
  • “Our AI business has a multibillion-dollar annual revenue run rate, continues to grow triple-digit y/y percentages, and is still in its very early days”
  • More than 85% of the global IT spend is still on premises…not in the cloud yet…this equation will flip in the next 10 to 20 years…For companies to realize the full potential of AI, they’re going to need their infrastructure and data in the cloud”

After trading up double-digits in reaction to 5 of the last 6 earnings prints, Q1 was not exactly a clean quarter relative to what investors were expecting, especially after Spotify characterized 2025 as a year of “accelerating execution” on its last quarter’s earnings call. The overall Q1 headline numbers were underwhelming, with diverging performance in the Premium Subscription and Ad-Supported businesses relative to estimates. Within Premium Subscription, subscriber trends were better than expected, which was a key plus, but Premium ARPU and Premium gross margins fell short of estimates. On the other hand, within Ad Supported, user numbers fell short of estimates, but Ad-Supported ARPU and Ad Supported gross margins topped projections. The Co’s overall operating income also missed consensus by -1.8%.

Looking ahead, Q2 guidance was not something to write home about, with total revenue and operating income projections -1.6% and -2.8%, respectively, below consensus, as lower than estimated ad-supported MAUs more than offset slightly higher Premium Subscriber adds outlook.

Bulls will point to H2:25, where MAU trends are expected to improve from Q1’s lower user volumes coming off the strong Q4:24 Wrapped campaign and lower marketing spend. (UMG’s comments about seeing improved performance at other DSPs raised the question about market share shifts playing a role as well – see Theme #5 for more on that).

In terms of a few specific updates/takeaways we’d call out, 1) Spotify saw a strong 44% increase in time spent with video content, with most of that growth coming from podcasts (and Gen Z is leading the way); 2) The “Superfan” offering is not around the corner…they don’t seem to have industry alignment right now (see Theme #5 for UMG comments on this front); 3) We expect to see more innovation around improving the audiobook user experience; 4) The Co sounds more focused on using its cash on growth initiatives at the moment vs shareholder returns; and 5) Pricing continues to be a key tool in the toolkit for Spotify (mgmt still thinks Spotify is “one of the best values in entertainment”).

Overall, Spotify didn’t meet the high expectations but H2 should show the “accelerating execution” that investors are anticipating. Music streaming will remain a defensive sector in this volatile environment, which also has secular growth.

See below for more details on what we thought was most interesting from Spotify’s earnings and results and see Theme #5 for a deep dive into Universal Music Group’s results as well.

-> Spotify shares fell as much as -6.4% in reaction to earnings (closed down -3.4%) but the stock is still up a huge +44% YTD and has materially outperformed the labels (WMG down -2.4% and UMG up +4.6% YTD); The stock is neck to neck with NFLX up +30% YTD 

Q1 Numbers Underwhelmed Vs Street Expectations

• Q1 total revs were ~in-line w/ cons and grew +15% y/y (vs +17% y/y in Q4)  
• Q1 operating income missed cons -1.8% (but was a record high): Reached €509mn vs cons €519mn
• Q1 gross margin was in-line w/ cons and finished at a Q1 high of 31.6% (up +403 bps) 
• FCF took a step down seq but finished at a Q1 record high of €534mn

Q2 Guidance Disappointed On All Fronts Though Spotify Feels Very Comfortable Executing Even Within A Potentially “Noisy” Environment 

• Q2 rev outlook MISSED: -1.6% below cons
  • Incorporates an incremental headwind of ~$100mn from FX movements over the last qtr
  • Reiterated long-term annual rev growth target of 20%, but the “journey will not be linear” 
• Q2 op income outlook MISSED: -2.8% below cons
• Q2 gross margin outlook MISSED: 31.5% vs cons 31.7%
  • Looking into 2025 – reiterated that they continue to expect improvement in gross margins “at a more measured pace than last year’s exceptional gains” 
    • Seq gross margin cadence will be more variable over the course of the yr, w/ expectations for a “seasonally stronger” Q4

• On macro, mgmt is not seeing anything specific that is cause of concern for Spotify
  • “From where I sit, Spotify is faring better than most”
  • “Underlying data at the moment is very healthy” – Engagement remains high, retention is strong
• Reiterated long-term goal of reaching 1bn subscribers – Spotify is “a much, much larger business than the one we’re currently operating” 
• On capital allocation – focus remains on growth and maintaining balance sheet flexibility
  • The Co just achieved their first profitable yr last yr – “this is really in an early stage for us”
  • Their first priority at this stage is to focus on growth oppties, and they want to have a strong balance sheet to be able to do that
  • As excess cash builds over time, they “will of course take shareholders into consideration”

Total MAUs Disappointed The Street But Are Expected To Be Stronger In H2 Vs H1

• Total MAUs of 687k fell short of cons 692k (missed by -2%) with upside in Premium sub adds more than offset by weaker ad-supported adds: Total MAUs grew +10% y/y and were marginally up seq
  • Y/Y growth was led by ROW and LatAm, though all regions grew
  • The softness seq was attributed to the strong Wrapped campaign in Q4 and moderated marketing activity in the qtr

• Total MAUs in 2025 will be w/in historical ranges and the “majority” of additions will come in H2 vs H1 (Q2 MAU guidance was below expectations): 
  • Do NOT expect to increase marketing spend relative to sales to achieve this FY MAU growth – marketing will be managed similarly to prior years

The Premium Subscription Business Added More Subs Than Expected But ARPU & Revenues Were Light Vs Expectations

• Q1 Premium business delivered a mixed bag w/ a slight -0.5% rev miss, as strong subscriber adds were offset by weaker than expected ARPU 
  • Revenue (90% of the total) rose +16% y/y (same in CC) vs +17% y/y (+19% CC) in Q4
  • Gross margin was light at 33.5% vs cons 34%
  • Strong subscriber growth at +12% y/y to 268mn vs +11% y/y in Q4…It was the highest Q1 since 2020 and the 2nd-highest Q1 in their history
    • Outperformance led by Rest of World, Latin America and Europe
    • Q2 OUTLOOK: Guided to +11% y/y growth to reach 273mn subs
  • ARPU grew +4% y/y (same in CC) to E4.73 which fell short of cons E4.78 and compares to +5% y/y (+7% CC) in Q4

Ad-Supported ARPU Was A Key Highlight As Was Higher Gross Margin But Ad-User Numbers Disappointed 

• Q1 Ad-Supported revenue (10% of the total) growth remains ~mid to high SD in CC and was in-line w/ cons as higher ARPU was fully offset by lower than projected user numbers: Revs growth at +8% y/y (+5% y/y CC) compared to +7% y/y (+6% CC) in Q4
  • Ad-supported MAUs at 423mn MISSED cons 426.4mn given lighter volumes of net adds due to timing of the 2024 Wrapped campaign and higher user growth in emerging markets (where stronger-than-expected conversion to paid plans reduced the ad-supported base, since those users shift out of the free tier once they subscribe)
  • Ad ARPU BEAT: €0.33 vs cons €0.31
• Ad-supported gross margins were MUCH STRONGER than expectations (15.3% vs cons 8.5%)
• A lower priced subscription plan that still has some advertising DOES NOT sound in the works: Mgmt stressed that it is more complicated to do this in the music industry vs the SVOD industry
• 2025 is still viewed as a foundation year for the ads business…Q1 had 10x the # of advertisers leveraging the new tools
  • Advertisers now have new ways to create, buy, and measure
  • The Co has gone from “thousands” to “tens of thousands” of advertisers
  • They are “welcoming all sorts of demand”
  • There is a strong foundation for future rev growth

Spotify Is Seeing Strong Success With Video Time Spent & Podcast Engagement

• Saw a huge +44% y/y increase in time spent in video content, mostly from podcast, and Gen Z is leading that growth by spending ~81% more time with video on Spotify y/y
  • “Very happy” w/ the growth & expect that to continue
  • Podcast video & music videos are “performing really well”

• Would you launch a free ad-supported TV streaming offer on SPOT? Structurally, there is “no reason why that won’t work” but are focused on added video b/c creators are asking for it & the Co is supporting existing creators in expressing themselves in that way
  • Launching streaming TV video would be adding an entirely new creator eco-system onto the platform BUT “never say never”

• Spotify Partner Program expanded to 9 new markets: The program has enabled them to pay out $100mn+ to creators and this is “only the beginning”

Other Key Comments

• On the potential “superfan” offering which has been talked about for some time, it is still an “upside opportunity” BUT “for the very, very long-term”
  • Near- and mid-term growth from existing subscriptions “is plenty enough for us”
  • “We’re not dependent on [the Superfan offering] for growth but we want to make it happen”
  • Would involve new, higher-priced tiers aimed at segmenting Spotify’s large user base
  • Requires alignment and participation from industry partners to unlock the premium experiences for superfans
    • Essentially implying that they do not have that, but at the same time, mgmt also said that their relationship w/ the labels is “better than ever” and that they are “all aligned on incentives” (…hmmm)

• Pricing – the Co is in the “early innings of segmentation” and the “opportunity is big” for price increases
  • “Spotify is still one of the best values in entertainment and churn remains low”
  • Price increases are part of the toolbox

• “Tremendous oppty for old school product development” in audiobooks: Can improve the experience in ways like when consumers get back into a book, discover books, and access to non-English options as well

Before the trade war market dislocation came into the picture in a big way, UMG shares were already on a roller coaster with the stock trading down almost -11% from Feb 14 to when the Co reported on March 6^th at which time it rebounded +6.3% on the day, only to be met shortly thereafter with a -9% sell-off on news that a group of UMG shareholders affiliated with Bill Ackman’s hedge fund Pershing Square sold $1.4bn+ in a stock sale. The shares have been crawling their way back as investors gravitate to safer and more resilient places, which music is one, during these uncertain times. UMG’s Q1 results did not disappoint given that Recorded Music Subscription streaming revenue growth accelerated faster than expected (ex-FX was up +9.3% y/y vs +9.0% y/y in Q4 and vs +7.2% ex 1x items in Q4). The “vast proportion of the growth” came from subscriber additions, a shift from lower ARPU into higher ARPU geographies (US & Japan), and better conversion to paid in markets like China. Price increases were not a big driver, hence those benefits are still to come (especially if press speculation about Spotify raising prices in some non-US regions is correct). Overall, the Co is tracking to its +8-10% CAGR of Subscription streaming revenue through 2028.

The trends in ad-supported streaming are not as favorable, yet. While the segment flipped into the black regarding revenue growth and beat consensus, the driver was easier comps. The underlying trends remain “challenged by the shift to short-form consumption”, which is not yet adequately monetized. Q2 will also benefit from easier comps but this segment of the business is a work in progress.

What is going on with the Superfan tier that Spotify was supposed to launch this year? It is unclear. Given Spotify’s call out that they “need alignment and support from our industry partners to offer these kinds of new experiences to our users”, among other things – see Theme #4) to move forward with the premium tier product, it was interesting to hear UMG’s comments about how “encouraged” they are by their conversations with Spotify. Mgmt also gave some good details on Tencent Music’s Super Tier launch and reception as a case study showing success. Overall, it sounds like we are not getting the full story here. UMG also highlighted that in addition to the Super Tier, they see a “complementary opportunity” going after the superfan of individual artists. We suppose this could be a point of leverage…

Lastly, from a macro perspective, UMG mgmt. remains confident in their execution looking ahead despite the uncertainty. Citing research, mgmt. articulated that “when there’s been inflationary pressure and household budgets tighten, music subscriptions [have] always been resilient.”

See below for more color and detail on what we viewed as most important and incremental from UMG results and earnings call. See Theme #4 for a deep dive into Spotify’s results

-> UMG shares rose +3.3% on the back of results and are up +4.6% on the year

It Was A Solid Qtr For UMG (Again) Though Adj EBITDA Margins Were Light

• Total rev was better than anticipated: Ex-FX, Q1 rev growth accelerated to +9.5% y/y from +7.9% y/y in Q4 and beat cons by +2.5% (following a +4.9% beat in Q4)
  • Recorded Music revs beat by +2.6%…accel’d seq to +10.3% ex-FX vs +6.8% y/y in Q4 (and excluding 1x items, +4.6% y/y): Posted strong growth in subscription, physical, and in licensing and other revenue
  • Music Publishing revs beat by +2.2%…grew +9.5% y/y driven by +17% y/y growth in digital revenue (due to streaming & subscription activity); Performance revenue had a tough comp (+28% y/y in Q1:24)
• Adj EBITDA also surpassed estimates: Ex-FX, adj EBITDA grew +10% y/y (vs +19.1% y/y in Q4) & topped cons by +1.1%

Recorded Music Subscription Streaming’s Accelerated Growth Was Key Highlight 

• Recorded Music Subscription rev growth accelerated and topped Street forecasts: Ex-FX, Subscription rev was up +9.3% y/y vs +9.0% y/y in Q4 (+7.2% ex 1x items in Q4) and was +2.6% ahead of cons
  • The impact of price increases in terms of the Q1 growth “was small”; The “vast proportion of the growth” was coming from subscriber growth and a shift from lower ARPU into higher ARPU geographies

• Geography – UMG subscription revenue growth
  • Saw double-digit rates in top-developed music mkts where subscription is still at an earlier stage, such as Japan and Germany
  • Saw double-digit growth in large population mkts where digital music consumption is booming, such as China and Mexico

• Importantly, saw improved subscriber & revenue growth on several DSPs partners & Subscription revenue growth was very well diversified in the qtr 
  • 3 of their Top 5 DSPs grew rev by double-digits & another Top 5 partner posted high single-digit growth
  • 4 of their Top 10 DSPs grew rev by double-digits
• Also saw growth in higher ARPU subscribers in key mkts, namely the US and in Japan, and better conversion of free user to paid in key emerging markets, esp in China
• Outlook- the Co reiterated its Subscription Streaming revenue guidance of +8-10% CAGR through 2028
  • Reminder that 50% of that will come from ARPU growth and 50% will come from volume growth and this growth will “come in waves”
  • When there is a price increase, “we would envisage that the growth rate would be higher than that range”

Recorded Music Ad-Supported Streaming Also Showed Strength Vs Projections BUT Given Easier Comps / The Ads Biz Remains “Challenged”

• Ad-supported streaming revenue flipped to growth and beat cons by 1.1% due to easy comps: Ex-FX, it was up a marginal +0.3% y/y (vs -4.1% in Q4) helped by easier comps against 2 of the months where they were off-platform with TikTok in early 2024
• Underlying trends continue to be “challenged by the shift to short-form consumption”, which is not yet adequately monetized
• Will also have easier comps in Q2 (as flagged before): Will comp against 1 lost month of TikTok rev and will begin to anniversary the loss of the Meta premium music video license

Music Should Be Resilient In Difficult Times / Mgmt Remains Confident Despite Uncertainty

• “Despite the economic uncertainty in the world, we remain confident not only in our performance, but in the resiliency of our global business”
• “Throughout these periods, each time I’ve witnessed how music remains vital, financially sticky, and critical to culture”
• “Music is one of the least expensive forms of entertainment, and nothing provides more comfort in times of uncertainty and anxiety than music”
• There’s been plenty of research…when there’s been inflationary pressure and household budgets tighten, music subscriptions [have] always been resilient”
• “In 2020, while global GDP shrank, recorded music revenue actually grew by +7.4%”
• “We have very significant protection against digital revenue downside risk this year because of the various guarantees that are structured into many of our deals”

“Encouraged” By Conversations About the New SuperFan Tier But Are Not Calling Out Potential Timing

• Spotify said they “need alignment and support from our industry partners to offer these kinds of new experiences to our users” so how it is going? “We’re deeply engaged with all of our key partners, including Spotify on this category of opportunity, and we’re very encouraged by the direction of all those conversations”
  • They “hope” to be able to “publicly elaborate on the collaborative plans that we’re developing later this year” but the timing questions are “obviously questions for the platforms”

• In addition to the Superfan Tier, UMG sees a “complementary opportunity” going after the superfan of individual artists: I.e., per an article earlier this month about Ed Sheeran potentially launching his own standalone DTC product outside of the DSP marketplace
  • In a similar fashion, UMG operates “thousands” of different artist-based e-com stores, which are complementary to a super premium strategy of working with the platforms

• Mgmt continues to cite their research indicating that ~20% of the current subscriber base is prime for adoption of super premium tier products
  • Expect different configurations of different platforms that could be potentially priced at 100% of the current price point to get that 20% level of adoption

• Tencent Music is a good case study on the success of a Superfan Tier: Citing TME’s Q4 2024 results…
  • Their super premium tier called SVIP had seq growth in Q4 and penetration at low teens of their subscriber base
    • Back of the envelope, 13% of the 121mn subs base implies 15mn+ SVIP subs after ~ 5 qtrs of service
    • The price point for SVIP is 5x the standard price point
    • And, China is a market historically regarded as being very resistant to paying for music

While the quarterly results themselves were relatively uneventful, Apple provided a rare level of detail this qtr on how evolving tariff dynamics are starting to influence its operations. Tariff-related impacts were “limited” this qtr (FQ2), but the Co expects pressure to build in FQ3, estimating a ~$900mn headwind tied to current global tariff rates, which is assuming no new policy actions or changes. This anticipated cost is reflected in Apple’s lower-than-expected gross margin guidance for next quarter (45.5–46.5% vs. Street’s 47.0%), signaling margin pressure could materialize more visibly in the near term.

While most core products, including the iPhone, Mac, iPad, Apple Watch, and Vision Pro, will avoid the steepest tariffs (such as the 145% rate affecting certain accessories and AppleCare), Apple is actively diversifying its supply chain. For US-bound devices, the majority of iPhones will originate from India, while nearly all iPads, Apple Watches, and AirPods will come from Vietnam. Meanwhile, China will continue to serve as the primary country of origin for products sold outside the US. Domestically, Apple is scaling its manufacturing footprint and supplier base, with plans to invest $500bn over the next four years.

That said, mgmt emphasized that the addtl color on tariff-related costs and sourcing is not intended to be extrapolated beyond the June qtr, given the fluid policy environment.

Quickly on the qtr, Apple delivered a +0.9% beat on revenue (driven by Products, as Svs slightly missed), and gross margin came in in-line at 47.1%. Next qtr guided to rev growth that was ~in-line w/ Street expectations, but gross margin guide of 45-46.5% was below cons 47.0%.

Also to flag, the Co authorized an addtl $100bn in share repurchases and raised its dividend by +4% to $0.26/share, reaffirming its commitment to annual dividend growth, now in its 13th consecutive yr.

See below for more on what we viewed as key commentary on the call.

-> Apple was down -3.7% after its report and ended the week down -1.9%; YTD, the stock is down -18% 

FQ2 Marginally Beat Expectations / But The Tariff Impact Was “Limited” In The Qtr 

• Rev growth beat by +0.9%: Grew +5% y/y (vs +4% y/y in FQ1)
  • Products beat cons by +1.6%; Services missed cons by -0.2%
• EPS beat expectations by +1.9% (and was a March qtr record): $1.65 vs cons $1.62
• Gross margin of 47.1% was in-line w/ expectations: Was up +20bps q/q, primarily driven by favorable mix 
• Impact from tariffs? “Limited”: “We had a limited impact from tariffs as we were able to optimize our supply chain and inventory”

Digging Into FQ2 Segment Performance – Strong Products Performance In FQ2, While Svs Came In Slightly Below Expectations 

• Product rev accel q/q and beat across all segments, w/ the exception of Wearables: Grew +3% y/y (accel from +2% y/y in FQ1); Gross margin of 35.9% was down -340bps seq, primarily driven by mix, FX, and a seasonal loss of leverage
  • iPhone: Up +2% y/y (accel from flat y/y in FQ1), driven by the iPhone 16 family
    • In mkts that had Apple Intelligence rolled out, y/y performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available
  • Mac: Up +7% y/y (decel from +16% y/y in FQ1), driven by the latest MacBook Air, MacBook Pro and Mac mini models
  • iPad: Up +15% y/y (in-line w/ FQ1), driven by the new M3-powered iPad Air.
  • Wearables, Homes and Accessories: Down -5% y/y (decel from -2% y/y in FQ1); Faced a more difficult compare against the launch of the Apple Vision Pro in the yr-ago qtr, as well as the Watch Ultra 2 launch last yr

• Service rev reached an all-time rev record (but slightly missed cons by -0.2%): Up +12% y/y (decel from +14% y/y in FQ1); Gross margin of 76% was up +70bps seq, driven by mix, partly offset by foreign exchange
  • Both transacting and paid accounts reached new all-time highs, with paid accounts growing double-digits y/y
  • Paid subscriptions also grew double-digits and reached 1bn+

• Geographic callout – China fell -2% y/y (an improvement from -11% y/y in prior qtr) and was ~flat ex-FX, likely due to subsidies: “Believe” that subsidies had a favorable impact on the results but “difficult to estimate with precision as to exactly how much” b/c “some of our products are included. Some of them are not”
  • iPhone was the key driver of the improvement sequentially
    • iPhone was the top two models in urban China
  • Mac, the iPad, and the Watch are attracting a majority of new customers to the product – “that continues to look quite good in China” 
    • iPad was the top two tablets in urban China

FQ3 Guidance Was A Mixed Bag Versus Expectations / Tariffs Are Expected To Have An ~$900mn Impact In The Qtr

• Impact from tariffs on Jun qtr – “currently, we are unable to precisely estimate the impact of tariffs, as we are uncertain of potential future actions prior to the end of the qtr” 
  • Estimated impact is $900mn, assuming the current global tariff rates, policies and applications do not change for the balance of the qtr, and no new tariffs are added
    • Estimate should NOT be used to make projections for future qtr, as there are certain unique factors that benefit the June qtr (did not provide more color beyond that comment)

• FQ3 rev guidance was ~in-line: Low-to-mid single digits y/y vs cons +4%
  • Expect FX to improve seq, but will be a “slight” headwind to rev on a y/y basis
• FQ3 gross margin guidance missed: 45.5-46.5% vs cons 47.0%
  • Includes the estimated impact of the $900mn of tariff-related costs in the qtr
• FQ3 OpEx guidance came in ahead: $15.3-15.5bn vs cons $15.11bn
• FQ3 OI&E: ~-$300mn, excluding any potential impact from the mark-to-market minority investments

Did Not See A Pullback In Consumer Demand In The Qtr / Shifting US-bound Product Manufacturing Away From China In FQ3 

• The Co did NOT see “obvious evidence of a significant pull forward in demand” in FQ2: Unit channel inventory from beginning to the end of the qtr was “similar” across their products 
  • BUT “we did build ahead inventory” (did not provide more color beyond that comment)

• Impact of tariffs on FQ3 – avoiding harshest tariffs as most core products will face the 20% vs 145% 
  • “Most” of their tariff exposure relates to the Feb IEEPA-related tariff at the rate of 20%: Which applies to imports to the US for products that have China as their country of origin.
  • The addtl +125% April-announced tariff is only applicable to certain categories of products…: Including some of their US AppleCare and Accessories biz (would bring total rate for these products to at least 145%)
  • …and the “vast majority” of products are NOT subject to April-announced global reciprocal tariffs: Includes iPhone, Mac, iPad, Apple Watch and Vision Pro
    • This is b/c The Commerce Department has initiated a Section 232 investigation into imports of semiconductors, semiconductor manufacturing equipment and downstream products that contain semiconductors
• Updates on product sourcing and country or origin in FQ3 – 
  • For products coming to the US –
    • iPhone: Expect the majority of iPhones sold in the US will have India as their country of origin
    • iPad, Apple Watch, and AirPods: Vietnam to be the country of origin for “almost all” sold in the US
  • China would continue to be the country of origin for the vast majority of total product sales outside the US
  • Did not provide guidance beyond FQ3: “I wouldn’t want to predict the mix of production in the future”
• Any changes on pricing philosophy? “Nothing to announce today”: “’ll just say that the operational team has done an incredible job around optimizing the supply chain and the inventory. And we’ll obviously continue to do those things to the degree that we can”
• Apple was vague on impact to supply chain – “we have a complex supply chain. There’s always risk in supply chain”: “What we learned some time ago was that having everything in one location had too much risk with it. And so, we have over time with certain parts of the supply chain, not the whole thing, but certain parts of it, opened up new sources of supply. And you could see that kind of thing continuing in the future”

Expanding Manufacturing Presence In The US 

• “We’re excited about bringing more production to the US” – will spend $500bn over the next 4 yrs to expand presence in the United States
  • Did not break out exact mix of CapEx vs OpEx vs R&D
• Expanding teams and facilities in several states, including Michigan, Texas, California, Arizona, Nevada, Iowa, Oregon, North Carolina, and Washington
• Opening a new factory for advanced server manufacturing in Texas
  • Will be executed through a partner — “we’ll be putting a fair amount in cost of goods sold to do that and some OpEx as well, and I’m sure some CapEx as well”

• Also increasing sourcing in the US – 
  • During CY2025, expect to source 19bn+ chips from a dozen states, including “tens of millions” of advanced chips being made in Arizona this yr
  • Also sourced glass used in iPhone from an American company
  • Altogether, have 9k+suppliers in the US across all 50 states

AI Strategy Callouts – Expanding Apple Intelligence But Delaying “More Personal Siri” As R&D Investment Continues To Grow 

• Released iOS 18.4, which brought Apple Intelligence to more languages, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, and Simplified Chinese, as well as localized English variants for Singapore and India
• Update on “the more personal Siri” – “we need more time to complete our work on these features so they meet our high quality bar”
  • “There’s not a lot of other reason for it. It’s just taking a bit longer than we thought. But we are making progress, and we’re extremely excited to get the more personal Siri features out there”
• General callout on R&D spend – “we make significant investments in R&D, that continues to grow”: “We’re continuing to grow our R&D investment. And so, we definitely are making all the investments we think we need to enable our roadmap”

Not Expecting Near-Term Impact On The Regulatory Front

• Any developer impact in Europe w/ emergence of alternate app stores from Digital Markets Act? 
  • “The Digital Markets Act has been enacted for a bit over a year, and there’s been alternate app stores for some period of time of that. And so, it’s, at this point, in Europe, there are some embedded in the actuals”
  • “There may be more to come and so forth. I don’t want to predict beyond the current quarter”
• On Epic Game injunction – “we strongly disagree”: “We’ve complied with the court’s order and we’re going to appeal”
• On DOJ’s Google antitrust case”: “That case is ongoing and I don’t really have anything to add beyond that”
• Regarding all the cases, “there’s risk associated with them and the outcome is unclear”

Given the discretionary nature of the biz, the question that was likely on the back of many minds going into Live Nation’s results was whether the Co is seeing any signs of consumer pullback — and the answer was a clear no. Demand remains strong across the board, with no signs of slowdown in ticket sales, sponsorship activity, or on-site spending. Despite a top-line rev miss in Q1 across all segments, most notably in Ticketing, it was attributed to event timing and lower non-concert supply vs last yr rather than demand issues. April on-sales are outperforming last year thus far, with artists like Chris Brown and Lady Gaga selling out shows, and deferred rev hit a record high (for both Concerts and Ticketmaster), indicating a strong pipeline for the rest of the year.

In Concerts, AOI posted a big beat, driven by scale efficiencies and margin tailwinds from strong fan growth. Mgmt expects this dynamic to hold through the yr, even with a mix that includes some lower-margin stadium shows. They also flagged that impact from tariffs on the overall Concert biz is expected to be “minimal.”

Looking ahead, the Co continues to invest in its venue footprint, with a buildout plan that includes at least 20 new large-scale venues, 4 of which are expected to open by the end of 2025 and the rest by 2026. CapEx guidance for 2025 was reiterated, of which the majority is going towards the venue expansion efforts.

There were some other key updates from the Co, including on its pricing strategy, its recent acquisition of Hayashi, regulatory updates, and more. See below.

-> Live Nation traded up +1.9% in reaction to its print and ended the week up +0.8%; YTD, the stock is up +3.3%

Q1 Saw Mixed Results On The Top-Line, With Better-Than-Expected Op Income But Rev Missing In All Segment 

Snap’s strong Q1 performance was overshadowed by the company not providing Q2 guidance. The Co beat across the topline, and similar to last qtr, particularly outperformed on profitability and EPS. However, they experienced some headwinds at the start of Q2 (driven by impacts from Asia based advertisers) and while they’re still continuing to grow the topline, given uncertainty around macro and ad demand impacts, they decided not to issue an outlook for the second qtr.

Digging into Snap’s Q1, better monetization in North America (beat by +5%) drove an acceleration in regional revenue from +8% y/y in Q4 to +12% y/y in Q1. Mgmt credited the performance to long-term investments being made in the ad platform, particularly in DR and SMB customers, beginning to pay off. It was not all good news in the region as N. Amer DAUs actually fell seq (from 100mn in Q4 to 99mn in Q1), but mgmt does not anticipate that slide to persist.

More broadly, the Co is leaning into medium-sized advertisers as a key growth lever for its direct response business. While SMB momentum remains strong, driving a +60% y/y increase in active advertisers, Snap sees growing product-market fit with mid-sized clients and is streamlining Snap Promote to help them scale more easily. That said, Snap remains demand constrained. Global impressions rose +17% y/y, but eCPMs fell ~7% as inventory growth outpaced demand. The Co is working to close that gap by expanding placements like Sponsored Snaps and adding more goal-based bidding tools to improve performance and monetization.

There were also some platform related updates around Snapchat+, Simple Snapchat, Spotlight, and more. See below.

-> Reddit also reported a strong Q1 (revs +6.3% ahead of cons, adj EBITDA +30% above, and better FCF) and Q2 guidance surprised on the upside as well (revs 7% ahead & adj EBITDA 16% above); The issue was DAU trends as the Co cautioned April DAU growth of high teens vs the reported +31% y/y in Q1  

-> Snap plunged -12.4% post its print, but somewhat recovered through the week close the week down -1.1%; YTD, the stock is down -21.5%; Reddit was down -4.2% after it reported results and ended the week down -3.6%; The stock is down -30.4% YTD 

Delivered A Strong Qtr Especially On Profitability & Lowered FY Op Expense Guidance

• Another qtr of solid beats in Q1 (with Adj EBITDA & EPS significantly surpassing estimates) / N. America rev seq acceleration was also a key highlight 
  • Q1 rev – BEAT by +1.0%: Grew +14% y/y (in-line w/ Q4), driven by the progress in DR ad solutions, continued momentum in driving performance for SMBs, and Snapchat+ subscription growth
    • RoW grew the most y/y…: At +20% (but decel from +35% y/y in Q4), followed by +14% y/y in Europe (decel from +20% y/y in Q4)
    • …while N. America was the only region that posted an accel to +12% y/y (vs +8% y/y in Q4)
  • Q1 adj. EBITDA – BEAT by +69.1%: $108.4mn in Q1 vs $276mn in Q4
    • Adj EBITDA flow-through was 37% in Q1 (up from 60% in Q4), as the Co “continue[s] to balance investment with realized topline”
  • Q1 adj. EPS of -8c was much better-than-expected vs cons -18c 
  • Q1 FCF also beat by +6.4% 
• Much better N. Amer ad-ARPU was a main driver along with Snapchat+ (see more below)
• Lowered FY25 OpEx guide by $50mn @ md-pt: From prior range of $2.7- $2.75bn to $2.65-$2.7bn
  • ~2/3 of OpEx is people-related costs, and given the updated guidance, will be “thoughtful” about pace of hiring

Snap Has Started To See Some Signs Of Macro Weakness & Withholds Q2 Guidance

• The Co did not provide Q2 guidance / “Thus far in Q2, we’re still growing. But we’re seeing some headwinds to our top line growth so far” 
  • “Given the uncertainty with respect to how macroeconomic conditions may evolve in the months ahead, and how this may impact advertising demand more broadly, we do not intend to share formal financial guidance for Q2”

• The Co is hearing from “a subset” of advertisers that their spending has been impacted by changes to de minimis exemption 
  • How much do China-based advertisers make up of the overall ads biz? “We don’t really break it down at that level of detail. We’ve not previously disclosed that market as a breakout market in our Qs and Ks. So in some ways that perhaps is helpful in and of itself”
  • “I caution here, it’s just really difficult to parse the drivers between the various potential factors there”

Monetization In N. Amer Was A Notable Highlight But It Came With Lower N. Amer MAUs Q/Q, Which The Co Does Not Expect To Continue 

• Snap posted much better monetization in N. Amer with Q1 ARPU beating cons by +5%
• Q1 DAUs also BEAT by +0.2%: Grew +9% y/y (in-line w/ Q4 and Q3) to reach 460mn (incr’d +7mn seq)
  • BUT N. Amer LOST subs in Q1 (down -1mn q/q), while Europe was flat and ROW added +8mn q/q
    • Outlook: The Co does NOT expect further declines in N. Amer in Q2
  • Q2 DAUs outlook: Estimated to reach 468mn
  • Also highlighted reaching 900mn MAUs, and are “on the way to our goal of 1 billion monthly active users”

Growth In Direct Response Was The Key Driver, While Brand Revenue Declined

• Q1 total ad rev grew +9% y/y (vs +10% y/y in Q4) driven primarily by growth from DR ad rev (similar commentary in Q4 and Q3)
  • Q1 direct response ad rev incr’d +14% y/y (in-line w/ Q4); DR ad rev contributed to 75% of total ad rev for the first time in Q1
    • Looking ahead – what will it take to get to 20%+ y/y growth in the DR biz? Ongoing ad platform improvements, product roadmap execution (goal-based bidding objectives and dynamic product ads), organizational improvements from consolidated go-to-market leadership, and expansion of DR placements (including Sponsored Snaps)
  • Q1 brand-oriented rev was down -3% y/y (vs -1% y/y in Q4), due to a combination of softness in upper funnel demand across all regions, as well the ongoing mix shift in ad biz toward performance-oriented ad solutions

• Continue to be demand-constrained but also is growing supply in areas 
  • Global impression volume grew ~17% y/y, driven in large part by expanded advertising delivery within Spotlight as well as Creator Stories
  • Total eCPMs were down ~7% y/y, as inventory growth exceeded advertising demand growth in Q1
  • Continue to take steps to increase inventory overall – 
    • Expanding inventory through Sponsored Snaps, esp within high-engagement areas like chat 
    • Improving monetization of that inventory by integrating more goal-based bidding (GBB) objectives, like Pixel Purchase, to make it more effective for advertisers
    • Training ad models on the new Sponsored Snaps placement to improve performance over time

• Seeing momentum building with Snap Promote / Medium-sized advertisers are a key focus 
  • Total active advertisers grew +60% y/y in Q1, despite lapping Snap Promote launch in the prior-yr qtr, largely driven by “robust” top line growth from SMB client segment 
  • Ongoing efforts to streamline Snap Promote and simplify the transition to the full Ads Manager, which is helping advertisers scale their efforts.
  • Focused on ramping up medium-sized advertisers, in terms of the dollar volume overall
    • “I think those medium customers can really help accelerate the growth of our direct response business, and we’re seeing some really good product market fit there”

Snapchat+ Was A Key Driver To Growth In Q1

• Snapchat+ is included in “Other” revenue which grew +75% y/y (vs “more than double” in Q4) to reach $152mn, or “just over” a $600mn ARR (Other rev includes all non-advertising rev, the majority of which is Snapchat+ subscription rev)
  • This is a $65mn y/y increase which is x% of the total $168mn increase in revenue so a material dlriver
  • Snapchat+ subscribers reached “nearly” 15mn (vs 14mn in Q4, 12mn+ in Q3 and 11mn+ in Q2), which is an increase of 5mn or +59% y/y

A Couple Key Platform & Product Updates

• Visual communication and AR integrations is where Snap sees itself differentiating with its My AI chatbot   
  • While chat is “popular” and voice is “to some degree, growing,” visual communication is “where we really want to differentiate”
    • Looking at the way users are interacting with My AI by sending Snaps and either receiving Snaps or a chat response in return, think that multimodal models are going to play “a really powerful role”
  • Longer-term, investing “a lot” in the integration of AI with augmented reality
    • “We really do believe that augmented reality is the ideal interface for AI”
    • Will have more announcements around that later this yr
  • My AI DAUs incr’d 55%+ y/y in Q1

• Scrapping the 3-tab “Simple Snap” redesign…it was not working   
  • Found in testing that it was difficult, esp for “power users” to adopt to the 3-tab design
    • “Our most engaged Snapchatters consistently demonstrated a preference for a 5-tab layout”
  • Have now begun testing a “refined” 5-tab interface “that combines the best of both approaches”
    • “And I think as a result, we’ve been seeing some more broad-based gain”

•  Spotlight now reaches 500mn+ MAUs 
  • View time is up +25% y/y (no comp from Q4) 
  • # of views on Spotlight posts < 24 hrs old doubled y/y, “which contributes to a more engaging, timely and fresh viewer experience and accelerates the creator posting flywheel”
  • # of Spotlight posts by Snap Stars grew +125% y/y in N. Amer in Q1

Given all the concern about global leisure travel with several recent negative comments out of the airline industry, as a bell weather for online travel, Booking.com’s Q1 performance was a positive surprise. While the biggest upside was from cost management, gross bookings were marginally ahead as well (though Room Night growth did slightly fall short of estimates). Thus far in Q2, the Co was emphatic about not seeing a negative impact or any signs to give them pause in terms of hitting their stated full year targets, but still lowered the bottom end of the 2025 guidance ranges given the wider possible scenarios.

It was interesting to hear about what travel trends they ARE seeing with this backdrop, which include a moderation of inbound travel to the US, particularly from bookers in Canada and to a lesser extent from bookers in Europe, and also an improvement in trends in other travel corridors, for example from Canada to Mexico. That all resulted in stable growth overall. Booking’s global diversification of room night (~50%+ Europe, ~25% Asia, and low DD US) provides some insulation on a relative basis from these individual region shifts.

In the meantime, the Co continues to invest in strategic initiatives which include increasing availability of Alternative Accommodations, enhancing their Genius loyalty offering, building towards their Connected Trip vision, and innovating further with AI. We’d also add that the Co is growing its ticket attractions at a very fast clip (+92% y/y, but off a small base). The OTAs are more cyclically exposed businesses but so far, so good as it relates to people making online travel plans, but there is a long way to go looking ahead in 2025. In the meantime, finding ways to improve the customer experience and differentiate Booking’s platform will remain a key focus and area of investment, in a disciplined way.

-> Airbnb also reported this week and Q1 results were characterized by much higher margins on the back of inline gross bookings (grew +7% y/y and decelerated from +13.5% in Q4); It was a mixed bag for Q2 guidance in that the inline revs were helped by Easter timing shift and the Co also expects higher marketing spend; Similar to Booking, the Co talked about a decline in US as a popular travel destination for foreign travelers and mgmt. also talked about the higher end travel being unaffected by macro; Airbnb is also focused on leveraging AI and launched an AI customer service agent in April; The stock closed the day flat post results.

-> Booking has been a relative outperformer in the travel sector and is up +4.7% YTD vs Airbnb -4.7% and Expedia down -13.2%; In reaction to earnings, Booking were up +3.9% 

Booking Delivered Strong Headline Q1 Results, Esp On Adj EBITDA

• Q1 headline results were generally better than anticipated w/ much higher adj EBITDA (again) as well as FCF on the back of slightly better gross bookings 
  • Rev was up +7.9% y/y (vs +14.4% y/y in Q4) and beat cons by +3.5%, though gross bookings was only +0.4% ahead of cons
  • Adj EBITDA incr’d +21.2% y/y (vs +26.2% y/y in Q4) and topped cons by +28.0% (follows last qtr’s +12% beat as well): Growth was “largely” due to the higher revenue plus better-than-expected adj fixed operating expenses, which decr’d to +3% y/y in Q1 (vs +9% y/y in Q4) and exceeded the Co’s expectations primarily due to lower G&A expenses that benefited from a $17mn reduction of an accrual for certain transaction taxes
  • Adj EPS finished +43.1% above cons
  • FCF was up +22.8% y/y (vs -48.6% y/y in Q4) and topped cons by +134.2%
    • Helped by changes in working capital of ~$1.9bn that was primarily driven by the seasonal increase in deferred merchant bookings balance
• Q1 mkting expense was up +10% y/y and as a % of gross bookings was 3.8%, which was slightly higher y/y: The Co is seeing higher performance marketing spend as a % of gross bookings, but that was “planned”; Have seen  opportunities w/ lower ROIs than their avg ROIs but, “they are still positive ROIs”; “Economically, a good outcome, but mathematically, it is bringing the average ROIs slightly down”

The Co is NOT Seeing Any Signs Of Impact On Their Business As Of Now, But Acknowledges That Could Change

• Mgmt stressed that they cont’d to see stable travel demand trends for Q2 and for the remaining year 2025, but caveated that these trends could be impacted by the incr’d uncertainty in the geopolitical and macroeconomic environment
• However, the Co has seen some intra-qtr travel mix changes 
  • Seeing a moderation in trends for inbound travel to the US, particularly from bookers in Canada and to a lesser extent from bookers in Europe
  • Seeing an improvement in trends in other travel corridors, for example from Canada to Mexico, resulting in stable growth overall

• Having a globally diversified business helps the Co to mitigate country specific dynamics while capturing growth opportunities elsewhere
  • Booking’s global diversification of room nights = ~50%+ Europe, ~25% Asia, and low DD US

Q2 Guidance Solidly Ahead (With Some Timing Benefits) But Room Nights Are Tracking Lower Than Anticipated

• Q2 gross bookings growth outlook was ABOVE the Street’s forecast: Projected to increase +10-12% y/y (vs +7.2% y/y in Q1), topping cons’ +7.6% y/y at the mid-pt
  • Incls a couple ppts of positive impact from higher flight ticket growth
  • FX changes are expected to positively impact reported growth rates by ~+4% y/y, partially offset by the calendar shift of Easter from March 2024 to April 2025 have a slightly negative impact

• Q2 room nights growth outlook was LOWER than the Street anticipated: Expected to grow +4-6% y/y (vs +7.2% y/y in Q1), falling short of cons’ +6.1% at the mid-pt
  • Includes a “slight headwind” from the calendar shift of Easter into April
• Q2 ADRs outlook = flat y/y in constant currency
• Q2 rev growth outlook TOPPED the Street’s expectations: Forecast to rise +10-12% % y/y (vs +7.9% y/y in Q1), which is above cons’ +7.6% y/y at the mid-pt
  • Positively impacted by ~ 4% y/y from FX and ~ 3% from the shift in timing of the Easter holiday

• Q2 adj EBITDA outlook ~INLINE: Expected increase ~+16.0% y/y (vs + 21.2% y/y in Q1)
  • Includes ~+7ppts of positive impact from the Easter calendar shift and ~ 4% from y/y FX changes

Booking Reduced The Bottom End Of 2025 Guidance Given The “Range Of Possibilities Has Increased”

• “Although we continue to see stable trends globally so far in the second quarter, we recognize that our business could be impacted by the increased uncertainty in the geopolitical and macroeconomic environment. Therefore, we are widening the range of our full year expectations for constant currency growth”
• FY25 gross bookings and rev are forecast to grow by ~+MSD-HSD% y/y on an ex-FX basis (vs previous “at least” +8% y/y)
  • FX changes are expected to positively impact reported growth rates by ~+2ppts
• FY25 adj EBITDA is anticipated to rise ~+HSD-LDD% y/y on an ex-FX basis (vs previous ~+LDD% y/y): Implies that adj EBITDA margins will expand between +50-100bps y/y
• FY25 adj EPS is projected to increase by low- to mid-DD on an ex-FX basis
• FX impact? Assuming current rates, believe that changes in FX will positively impact FY 2025 reported growth rates by about 2ppts versus the constant currency growth rates in the guidance

Growth In Airline Was A Key Driver For Q1 Gross Bookings…Europe & Asia Led Growth In Rom Nights

• Q1 Gross Bookings growth decelerated but still slightly topped forecasts: Rose +7.2% y/y (vs +17.4% y/y in Q4) and closed +0.4% above cons; Growth in airline tickets was a key standout; Constant currency GB was up +10% y/y
  • Airline tickets bookings growth remained a standout and more significantly outperformed projections: Grew +44.8 % y/y (vs +52.3% y/y in Q4) and finished +4.7% above cons
  • Rental car days slightly missed estimates: Rose +7.7 % y/y in Q1 (vs +12.1% y/y in Q4) but fell -0.4% short of cons
• Q1 ADR in CC was up +1% vs +2% in Q4
• Q1 Room Nights growth also decelerated but outperformed projections: Incr’d +7.2% y/y in Q1 (vs +13.2% y/y in Q4) and beat cons by +0.5%; Benefited from incr’d accommodation choices provided to the travelers; In constant currency was up +10% y/y
• Q1 Room Night growth was led by Europe & Asia 
  • Europe – Room nights rose ~+hsd% y/y (vs ~+ldd% y/y in Q4)
  • Asia – Room nights were up in ~+hsd% y/y (vs ~+ mid-teens% y/y in Q4)
  • US – Room nights grew ~+lsd% y/y (vs ~+10% y/y in Q4)
  • RoW – Room nights went up in ~+ ldd % y/y (vs ~+20% y/y in Q4)

Posted Strong +12% y/y Growth In Alternative Accommodations (But A Decel From +19% y/y In Q4) & Saw Hyper-Growth In Attraction Tickets

• Q1 alternative accommodation room nights growth decelerated but was still up double-digits: Incr’d +12% y/y (vs +19% y/y in Q4 and +14% y/y in Q3) and accounted for ~37% of global room nights (an increase from ~33% in Q4)
  • Alternative accommodation room night growth accel’d across all operating regions: The Co has been growing alternative accommodations for the last multiple qtrs faster than traditional accommodations in all regions but haven’t seen an impact on ADRs or EBITDA margins
  • Supply increased on a qtrly basis: Total alternative accommodation listings were up +9% y/y to 8.1mn, which is up from 7.9mn in Q4 (and up 1ppt y/y); There was growth in supply in every region
    • Total accommodation listings for Booking is 31mn for reference
  • Booking has “outgrown the leader” in the alternative accommodations space 15 out of the last 16 qtrs: The Co anticipates that the trend will persist into the 16^th qtr as well

• Attraction tickets incr’d 92% y/y from a modest base: It currently represents a small portion, but can have significant potential in the future in this area
• Also ramping the Dining Experience: OpenTable has established a strategic partnership with Uber that will include developing integrations of their apps to offer dining reservation access and transportation options

Booking Is Making More Progress W/ The Traveler Experience But There Is Still A Lot Of Room To Go

• Booking saw growth of repeat and new travelers in Q1 with an increase in direct bookings and mobile app mix
  • The Co’s direct bookings mix improved: Over the last 4 qtrs, the Co’s B2C direct mix was in the mid-60% range, an increase from the low-60% range one year ago
  • Mobile app mix also improved and helped drive the direct channel: The mobile app mix of total Q1 room nights was in the mid-50% range vs low 50% range in 2024
    • The majority of bookings received from mobile apps came through the direct channel
  • The direct booking channel continues to grow faster than room nights acquired through paid mkting channels
• Level 2 & 3 Genius members represents 30%+ of Booking’s active travelers (same % as last qtr): These members have “meaningfully higher” direct booking rates and a higher booking frequency than the rest of the Co’s travelers
  • Members of the Genius loyalty program booked a ~mid-50s% of Booking.com’s total room nights since last 4 qtrs and continued to increase y/y
  • The Co observes that travelers are increasingly advancing to higher Genius tiers, Levels 2 and 3
• Strong expansion in Connected trip transactions: Q1 connected trip transactions were up more than +35% y/y (vs over +45% y/y in Q4), comprising a ~hsd% share of the Co’s total transactions

AI Remains Front & Center In Terms Of Company Initiatives But It Remains Early Days

• Progress with gen AI: The Co emphasized its commitment to leverage gen AI, aimed at enhancing personalization and booking efficiency, moving from conceptual discussions to tangible implementations
  • Kayak.ai: The Co launched Kayak.ai which is its test lab for AI-first features
  • Smart Filters: The Co is testing AI features including Smart Filters that help travelers find relevant results faster, property Q&A that answers specific questions that wouldn’t be addressed in a static listing, and AI Review Summaries that allow travelers to more easily sort through thousands of reviews
• AI integration & partnerships: The Co is working w/ leading Generative AI organizations on their agentic developments; Plans to partner w/ OpenAI’s Operator agent, Microsoft’s Copilot Actions tool, and Amazon’s Alexa+
• Connected Trip vision: The Co believes that AI (like a travel vertical-specific agent) plays a central role in their Connected Trip vision where it aims to simplify the planning, booking, and travel experience, making it more personalized, seamless, and enjoyable
• They are already seeing some of their AI offerings drive faster search, improvements in conversion, and fewer customer support contacts (but limited detail was provided)

On the last mile & delivery side, Instacart’s Q1 report showed strong continued consumer demand despite concerns around macroeconomic uncertainty. Customer engagement remained steady across various geographies and income levels, and Instacart continues to see resilience in basket sizes, even as customers shop within their budgets, with average item prices tracking in line with inflation. While mgmt acknowledged concerns, they highlighted that they have “deep” retailer partnerships, experience navigating through other periods of uncertainty, and a strong balance sheet will help them weather a potential storm.

In terms of the quarter itself, Instacart’s GTV grew by +10% y/y, hitting the top end of its guidance range, and order growth was the highest it’s been in 10 years. However, AOV was slightly down y/y, in line with expectations, partly due to the new $10 minimum basket for Instacart+ members. While this change did present a headwind in Q1, the company highlighted that it’s leading to higher GTV, increased order frequency, and stronger Instacart+ adoption, all while not cannibalizing larger baskets. The initiative also benefits the advertising business, as the smaller baskets often include snack and beverage items, categories that are favorable for ad sales. Speaking about advertising, Instacart has seen strength in ad trends to-date, but has also started to hear some concerns from brands. Even with that, the Co feels strongly that the ad base diversification they have been focused on for the past few years will help them “remain a leader in the space.”

Looking into next qtr, in addition to Q2 GTV and profitability guidance coming in ahead of expectations, Instacart reiterated its anticipation for expanding adj. EBITDA y/y on both an absolute and % of GTV basis in 2025 as they are “we’re well-positioned to navigate current macro conditions.”

See below for more of what we thought was most incremental with quarterly results and the conference call.

-> Instacart jumped +13.6% after its earnings release and ended the week up +7.9%; YTD, the stock is up +9.2%  

Mixed Q1 Results…Revs ~ Inline, Adj EPS Missed, And Adj EBITDA Beat

• Total revs were ~in-line w/ cons: Grew +9% y/y (vs +10% y/y in Q4), primarily driven by GTV growth
  • Transactions revs (~72% of total) – MISSED by -1.1%: Grew +8% y/y (vs +10% y/y in Q4); Represented 7.1% of GTV (in-line w/ Q4)
  • Advertising & Other revs (~28% of total) – BEAT by +2.2%: Grew +14% y/y (vs +10% y/y in Q4), with “strong” contributions from both large and emerging brand partners; Represented 2.7% of GTV (vs 3.1% in Q4)

• Adj EBITDA margins of 27.2% came in above expectations of 25.5% 
• Adj. EPS of 37c was a touch below cons 38c
• Seq step up in buyback in Q1: Repurchased $94mn work of shares in Q1 (up from $5mn in Q4); Have $218mn of capacity remaining

Q2 Guidance Beat Across The Board / No Change to Long-Term Goals Despite Current Macro Conditions

• Q2 GTV guidance range was just above cons at the mid-point ($8.85-9bn vs cons $8.93bn)
  • Represents 8-10% y/y growth
  • Expect Advertising & Other rev growth to “modestly” outpace anticipated GTV growth
• Q2 adj. EBITDA guidance beat cons at the midpt by +4.3%: $240-$250mn vs cons $234.8mn 
• Continue to expect that orders growth will outpace GTV growth in Q2 
• Remain on track to expand adj. EBITDA y/y on both an absolute and % of GTV basis in 2025
  • Expect Y/Y growth as a % of GTV to be primarily driven by ongoing adj. OpEx leverage
• Reiterated expectations of a “sizable” step up in SBC in Q2 seq, due to the timing of the annual refresh grants
  • Q1 SBC was $66mn, which was “slightly lower” than Co expected; Continue to expect Q1 to be their lowest qtr of SBC in the calendar yr
• “Overall, we’re pleased with our strong start to the year and we’re well-positioned to navigate current macro conditions”

No Pullback in Consumer Demand / Confident in Position with Consumers and Retailers to Maintain Resilience

• “…even though macro uncertainty remains, we have not seen any unexpected changes in consumer behavior through April”
  • Customer engagement “remains consistent” across geographies and income levels
  • Demand is “robust” across use cases – “from weekly grocery trips and stock up orders to higher frequency restaurant and fill in grocery orders”
  • Customers are shopping everywhere – continuing to shop at premium and discount retailers, though price parity retailers are also collectively growing faster on the marketplace
  • Basket sizes “remain resilient” as “customers generally shop with a budget”
  • Avg item prices on the platform continue to track in line with inflation
• “Deep” retailer partnerships “that go beyond surface level integrations” is another “key reason” the business “can be so resilient”
  • Including technical partnerships that enable loyalty and promotions to inventory, accuracy and fulfillment, through their marketplace or white label storefronts, or in-store innovation like Caper Carts
  • Value is extended to customers through “better prices and selection, improving efficiency across all operations and giving us access to growing parts of the markets that no one else has tapped into like we have” 
• “Uniquely positioned to help people save money” as “cost of groceries and other goods remaining top of mind for consumers” 
  • Continue to introduce new ways for Instacart+ members to save, like $0 delivery fees on $10 minimum baskets, which continues to encourage more mid-week fill-in grocery orders
  • Expanded Chase partnership to offer complimentary memberships, discounts, and monthly in-app credits to eligible United MileagePlus, Chase Co-Brand, and Chase Ink cardmembers
• Caveated that “we are operating in a period with lots of macro uncertainty and in particular, we know this could lead to more volatility amongst our brand partners and their advertising budgets” 
• BUT “Instacart has proven that we can grow through uncertainty and…our operating fundamentals and balance sheet are strong, which gives us the ability to reinvest in growth initiatives, while executing on our commitment to deliver annual-adjusted EBITDA expansion, both in absolute terms and as a percent of GTV in 2025”

Seq Accel In GTV And Record Order Growth Were Highlights In Q1 / Unlocking New Demand W/ $10 Baskets And New Offerings That Leverage Existing Shopper Network

• Q1 GTV grew +10% y/y (in-line w/ Q4) which was at the top end of guidance (8-10%) and slightly above cons
  • Order growth was up +14% y/y, which was the fastest growth in 10 qtrs, driven by increases in both order frequency and users
  • But AOV was down -4% y/y, which was as the Co expected, primarily driven by the addition of restaurant orders and lowered basket minimums to $10 for Instacart+ members, though it was partially offset by growth in basket sizes elsewhere
• Q1 “perfect order fill rate” increased +15pp vs 3 yrs ago, meaning every item was either found or replaced to the customer’s satisfaction 
• New features like Store View and Second Store Check are cost-effective b/c of existing shopper footprint
  • Launched Store View, an AI-powered tool that uses computer vision and videos of store shelves to better predict out-of-stocks and reduce substitutions 
    • Shoppers at a nearby store waiting for an order to come can earn more by scanning aisles, improving inventory data w/ minimal incremental cost
  • Piloting Second Store Check, where another shopper picks up the missing items from a nearby store and is meant to ensure customers get what they need even when items are unavailable
    • Shoppers frequently visit large-format stores (avg. 14 times/day), so Instacart can easily reroute nearby shoppers for real-time checks
• Can economically execute $10 minimum basket b/c they have “a very high density of orders in every store” / Also beneficial to ads bizs 
  • Launching the $10 minimum basket actually increases order density and gives them more orders they can potentially batch, which reduces fulfillment costs
  • Also, these baskets tend to skew towards snack/beverage items, which are “categories that are also good for advertising”
  • Are seeing “higher GTV, increased order frequency, stronger Instacart+ adoption” and have NOT seen cannibalization of large baskets
    • Seeing “very incremental” GTV that’s coming both from existing users, but also from new users and resurrected users
    • Seeing increasing order frequency across all customer cohorts, from yearly to quarterly, quarterly to monthly, and monthly to weekly
    • Driving more midweek fill-in trips, esp in dense urban areas, where customers are less likely to have a vehicle

Ads Biz Remains Strong, Though Some Whispers of Advertiser Caution / Broad Advertiser Base And Continued Diversification Should Help Cushion Against Macro Risks 

• While they “continue to see strength” in ad trends to-date, we unsurprisingly have started to hear concerns from brands” regarding uncertainty around trade policies and other regulations that could impact their ability to spend on marketing
  • BUT “even though no ads platform will be immune to macroeconomic risks, our performance-driven ad model and the work we’ve done to diversify our advertising base over the past year helps make our platform more resilient and very well-positioned to remain a leader in the space”
• Caper Carts impact to overall ads rev is still “extremely minimal” but seeing a level of engagement w/ those ads that is equal to online engagement          
  • “Gives us a lot of confidence in our ability to monetize costs well into the future”
• Have been “very focused” on diversifying their base of advertisers / Have 7k+ brands that are onboarded 
• “Continue to be best-in-class in both ROAS, as well as CTR, among large multi-retailer platforms” 
• Benefiting from a “virtuous cycle” w/ Carrot Ads: Increasing supply from expanding Carrot Ads, which drives stronger performance, and attracts more advertiser demand and get retailers more interested in working with them  retailer participation
  • Recently added Uber Eats’ US grocery and retail marketplace as a new Carrot Ads partner

• How does the ad platform supports emerging brands that have less name recognition and resources? 
  • “Done a lot of work to make our tools a lot more self-serve” 
    • Emerging brands have limited time and resources, so Instacart uses AI to deliver actionable insights and simplify campaign optimization
    • Launched Universal Campaigns, which simplifies campaign creation and uses AI to dynamically allocate a single budget across formats and placements w/o requiring addtl effort from brands
  • New ad formats like Sponsored Recipes and Inspiration ads increase product discovery and surface products outside the shopper’s typical aisle
  • “We are seeing all of that work and that’s reflected in the strength that we continue to have on emerging brands budgets that are really coming strong into the system”

“Continue To See Restaurant Adoption Deepen” BUT “There Are Still Lots And Lots Of Runway To Go” 

• “On average, customers using restaurants order groceries more frequently and spend more on the grocery orders than they did prior” 
  • Effect is “particularly strong” w/ less frequent and lapse customers, “where we, obviously, have even more room to grow”
  • Also seeing higher customer engagement, esp w/ Instacart+ members
  • Seeing larger order values on restaurants, on avg, than on other restaurant platforms
• Will not break out restaurants from grocery of biz b/c “the two are really deeply intertwined and…we really run it as one business and that’s the way we look at the business internally”
  • But flagged that contribution to overall growth will moderate in back half of the yr  
• So, we’re feeling very good about restaurants. And as a reminder, the core hypothesis with restaurants was really that it would reinforce grocery and create a virtuous cycle. And we are certainly seeing that with a very, very strong positive impact on grocery” 

Strengthening Enterprise Strategy With Wynshop Acq 

• Acquired Wynshop, which provides e-commerce technology that powers Wakefern, Pattison, and more than a dozen other retailer storefronts in North America and abroad 
  • Acq was a “no brainer”: “With Wynshop, we’ll be able to further enhance these retailer relationships and accelerate their growth over time with solutions like Storefront Pro, Carrot Ads, and our in-store technologies”
  • Highlighted that track record of acq has been heavily in the enterprise space (i.e., Caper AI, FoodStorm, Rosie, Eversight) “because these acquisitions directly build on top of a really strong product suite and feed directly into our strategy”

• Enterprise solutions are also starting to scale beyond retailers to distributors – launched Will Call, which enables Instacart shoppers to deliver distributors’ last-minute orders to business customers
  • In combination w/ continued enhancements to Instacart’s Business offering, like invoicing, can attract “even more” SMBs to purchase their products through Instacart 

Continue To Double Down On AI To Both Enhance Customer Experience And Boost Internal Operational Efficiency 

• Leveraging AI to “work smarter and move faster and further establish Instacart as a leader in AI driven development”
  • 87% of Instacart’s code was developed with AI assistance in Q1

• Enhanced AI-driven pairings, which suggest complementary items based on what was added to a cart
  • Offer pairings on 75%+ of marketplace orders, and they drive higher retention among new users who benefit most from the support in building their carts

• Smart Shop, their new AI-powered personalization foundation, which combines proprietary shopping data, advanced machine learning, and LLM reasoning, to make shopping “faster, easier, and more personal than ever”
  • Introduced 30 item-level Health Tags, like high-protein, gluten-free, low-sugar,
    • B/c 70%+ of their customers have at least one dietary preference
  • Can also detect household-specific needs, (i.e., shopping for kids or pets)
    • Make experiences more relevant “and create even stickier and more loyal Instacart customers”

• Still “very early” on agent-based commerce, but “we think this is something that has a lot potential and we want to lean into very early to make sure that we extend our lead in this market”